Finance Seminar（2021-07)

Topic: Misallocation in China's Intercity Road Network

Speaker: Zheng (Michael) Song, Chinese University of Hong Kong

Time: Wednesday, 24 March, 10:00–11:30 AM Beijing Time

Location: Microsoft Teams Online Conference Room

Abstract:

We quantify misallocation in China's intercity road network by estimating returns to road infrastructure investment for each city-to-city link. Using real-time GPS data from a million trucks, we first identify congested and uncongested based on whether speed significantly decreases with traffic density. We then estimate the elasticity of traffic flows to the capacity of a link conditional on its congestion status. We incorporate congestion heterogeneity into a trade model with optimal route choices developed by Allen, Arkolakis (2019). Our structural estimation shows that the model can replicate the main features of traffic flow, speed and congestion in the data. The benefit of expanding the capacity of a link is inferred from the estimated model. The cost of the expansion is estimated from construction costs based on physical topography and market value of acquired land. We find that about 80% of China's intercity links are uncongested and associated with nearly zero or even negative returns. The returns are much higher for congested links. The gap of returns between congested and uncongested links suggests severe misallocation of road infrastructure investment in China. To facilitate comparison, we also analyze real-time traffic flow data for highways in England. In sharp contrast to China, almost all intercity links in England are found to be congested.

Introduction:

Prof. Song is a professor at the Department of Economics, Chinese University of Hong Kong (CUHK), an outstanding fellow of the Faculty of Social Science at CUHK and a co-director of CUHK-Tsinghua Joint Research Center for Chinese Economy. He is also a senior fellow of ABFER and a fellow of Luohan Academy. His research focuses on Chinese economy and macroeconomics. His papers were published or accepted by leading academic journals including American Economic Review, Econometrica and Journal of Political Economy. His paper "Growing like China" won Sunyefang Economic Science Award and the Best Paper Award for Chinese Young Economists. Before joining CUHK, Prof. Song was an associate professor of economics at Chicago Booth. Prof. Song is also a co-editor of China Economic Review, an associate editor of Econometrica and sits on a number of academic advisory boards such as China’s Economics Foundation and Institute of Economics at SINICA.

Your participation is warmly welcomed!